Business energy in 2017: What your business needs to know

Several significant energy reform changes are expected in 2017, some of which could affect your business. Here, we give a complete rundown of the changes taking place within the industry, and provide guidance on the steps you can take to prepare for them.

Changes to the Climate Change Levy

Implementation date: 01 April 2017

As part of Budget 2016, the UK government announced changes to the main rates of the Climate Change Levy (CCL), with the first amendments due to take place in April 2017. As is usual practice, these rates will then increase in April 2018 and April 2019 also, in line with the Retail Price Index (RPI).

The move to increase the main CCL rates comes following the Summer Budget 2015, in which MPs discussed businesses’ growing concerns regarding the complexity and reporting requirements of the current business energy efficiency tax landscape.

The government later drew up a consultation paper, outlining plans to simplify the process whilst ensuring that the UK continues to adhere to its decarbonisation commitments. This document considered the relationship between business energy policies and regulations, including CCL, CRC (Carbon Reduction Commitment), mandatory greenhouse gas reporting, and taxes on other fuels.

Under the proposed revisions, the main rates for CCL will increase as follows:

These proposed changes will affect businesses which currently pay the main CCL rate on their qualifying energy consumption. Some businesses may see a small increase in their energy bill following the price rise. However, in the long term, costs are expected to decrease after the Carbon Reduction Commitment (CRC) Energy Efficiency Scheme is abolished in 2019/2020.

Project Nexus delivery

Implementation date: 01 June 2017

Currently, Britain’s gas market relies on Xoserve’s UK Link system for energy settlements and supply point administration. In 2017, this system is due to be replaced as part of Project Nexus, an Ofgem-sponsored IT infrastructure upgrade which aims to make the current system more reliable for both market participants and energy consumers.

Plans to replace the current UK Link system with an upgrade were first outlined in 2015. However, the go-live date for the new system has since been pushed back on a number of occasions through fears that the replacement system may not meet the anticipated requirements of the market.

Given the number of pushbacks experienced, Ofgem is keen to implement the new UK Link system as quickly as possible across the industry, so that consumers can begin to see the benefit of the new system. As it stands today, Project Nexus is projected to go live on 01 June 2017 (with a contingency date of 01 July 2017) — but what benefits can energy consumers expect from the new system?

The new UK Link system will bring significant change to the UK gas market, with a more streamlined infrastructure which better accommodates the switch to Smart meter reading systems. Ofgem believes that the new system could improve the energy settlement process through the capture of more timely and accurate smart meter data. However, from a consumer perspective, the scale of these benefits is not yet known.

New exemptions for Energy Intensive Industries (EIIs)

Implementation date: 01 April 2017

As part of its commitment to move to a low-carbon economy by reducing carbon emissions, the UK government introduced a number of levies to support the development and introduction of new renewable energy technologies. Among these costs are the Renewables Obligation (RO) and Feed-in Tariff (FiT) schemes, which apply to most businesses, and some households, in the UK.

However, due to the indirect cost of the RO and FiT, energy intensive industries (EIIs) are being placed at a significant competitive disadvantage, particularly when operating in international markets. Such EIIs are often large employers, and form a major part of the UK economy.

Currently, the UK government compensates British EIIs to help manage the cost of the RO and FiT energy charges — partially offsetting the sizeable economic strain placed on the country’s largest organisations. To ensure that such businesses can remain competitive in periods of long-term economic uncertainty, however, 2017 will see 85% of EIIs become exempt from paying RO and FIT costs, under new plans laid out by the government in 2016.

Aside from the obvious monetary benefit of cheaper electricity bills, transitioning from a compensation scheme to an exemption scheme has a number of advantages for EIIs. Support will be faster, more accurate and more certain according to the government, and businesses will enjoy greater economic assurance when entering new international markets in the coming years.

The new EII exemption scheme is set for deployment on 01 April 2017, so after this time, businesses can expect cheaper electricity bills. However, for businesses not eligible for RO and FiT exemption, there will be a consequent increase in the cost of electricity, though the government is confident that this cost will be offset by an increase in competitiveness in the overall electricity market.

As part of the on-going Electricity Market Reform (EMR), the UK’s primary support mechanism for large-scale renewable energy generation, the Renewables Obligation (RO), will switch to the Contracts for Difference (CfD) scheme, the new support mechanism for low-carbon electricity generation. The CfD scheme has been open for applications since 16 October 2014, and is set to close to new capacity on 31 March 2017.

For eligible businesses which generate sustainable electricity and have not yet applied to the new CfD scheme, there is now only limited time to submit an application to enrol on the scheme before the closing date.

While grace periods are available after the closing date, giving businesses time to apply for and gain accreditation under the RO after the closure date, these are not granted to all parties. Businesses will need to provide evidence regarding the problem preventing them from enrolling on the CfD before the closing date on 31 March 2017.

The overlap of the two schemes between 16 October 2014 and 31 March 2017 is called the ‘transition period’, and was set up to give eligible electricity generating stations time to submit their application to the CFD scheme before the RO and ROS (Renewable Obligation Scotland) schemes close to new capacity.

During this period, businesses have been advised to make a one-off choice as to which scheme they would like to apply for. According to Ofgem, in specific circumstances generating stations may be eligible to become dual scheme facilities (DSF), or RO-CFD phased projects, gaining support from both the existing RO initiative, and the new CFD scheme.

For more information on the RO closure, Ofgem has published a comprehensive range of guidance documents, here.

Final implementation date of P272 Mandatory Half Hourly Settlement

Implementation date: 01 April 2017

Since 2011, Ofgem and other industry regulators have pushed for mandatory smart meters for business and domestic energy consumers, citing a number of consumer benefits as the reason behind this industry-wide rollout.

In 2014, Smart Metering introduced the P272 regulation, requesting that all 5-8 meter profile class energy consumers receive a smart meter. This wasn’t made mandatory however, and many business energy customers within this profile bracket still rely on traditional metering as opposed to new smart meter technology.

On 01 April 2017, the P272 legislation is set to become mandatory, requiring all suppliers to settle customer profile classes of 5-8 with AMR meters on a half-hourly basis. For business energy customers, this means the end of estimated billing, with the rollout of smart metering becoming a legal requirement for all consumers on a 5-8 meter profile class.

For businesses on a meter profile class between 1-4, Ofgem has proposed similar changes, and will consider mandating HH settlement for the above profile classes in the future. This decision may be announced in 2017.

DECC reforms set for 2017 deployment

Implementation date: January 2017 (projected)

As covered previously on the Gazprom Energy newsfeed, the Department for Business, Energy and Industry Strategy (BEIS) plans to introduce changes to the Capacity Market (CM) in 2017-2018, a year earlier than originally expected.

Delivering energy security is at the forefront of BEIS’ agenda ahead of the new year, and the proposed changes to CM legislation are expected to go ahead as planned, with the Early Capacity Auction set to take place on 31 January 2017 for Winter 2017/18.

Tightening capacity margins, a shortage of new capacity, and concerns about the National Grid’s balancing reserve distorting the market have all led to the proposed changes, which were initially announced back in March 2016.

Provided the changes go ahead as proposed, the UK could enjoy a brighter security of supply outlook in the years to come. However, the changes will come at a cost to consumers earlier than expected. CM charges are based on consumption between 4-7pm on working days from the start of November to the end of February, so customers with the flexibility to move their consumption away from these hours are advised to do so to avoid a proportion of the new costs.

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